One of the efficiency metrics of Financial Investment defined as:

\mbox{PVI} = \frac{\mbox{PV}[CF^+]}{\mbox{PV}[CF^-]}

where

	Cash Inflows		Present Value of future Cash Inflows
	Cash Outflows		Present Value of future Cash Outflows

In case of:

then equation turns into conventional Profitability Index equation:

\mbox{PVI} = \frac{\mbox{PV}[CF^+]}{\mbox{PV}[CF^-]} = \frac{\mbox{PV}[CF^+]}{I_0} = 1 + \frac{NPV}{I_0}

The key difference with NPV is that PVI shows a value of returns per unit cash invested.

This particularly means that some Projects with higher NPV may be less attractive in PVI terms than Projects with lesser NPV as they require a higher Initial Investment.

This allows a fair comparison of investment efficiency between two investment projects with different Initial Investment volumes.

The corporate investment policy usually dictates that:

investment Projects with PVI ≤ 1 should be rejected
investment Projects with higher PVI should have a priority over the Projects with lowe rPVI
investment Projects with lower PVI are added up to the Investment Package to reach the pre-set value of affordable Initial Investment (I₀)
investment Projects with lower risk should have a priority over the Projects with higher risk

The quantification of Project's is performed individually for each Project based on its nature.

Weighing the Project's risks against PVI to include to or exclude from Investment Package is based on the Corporate Investment Policy.

See also